Supply constraint's upward shift helps oil industry foes
One subtle but politically important result of the oil market's upheaval is relocation of supply constraint.
For the whole market, demand is now the decisive limitation. For at least a while, if new demand raises the oil price, supply readily will materialize to fill it.
Supply still has limits; they just no longer define the market.
Earlier, when demand tried to expand, supply often couldn't respond immediately to the price signal.
This condition resulted from a combination of geology and production restraint coordinated by key members of the Organization of Petroleum Exporting Countries.
A lasting price increase would stimulate slow production growth outside OPEC. This is why supply comes today from high-cost realms such as the North Sea, the oil sands, and deep water.
Development of these resources took many years.
Now, promptly available supply awaits only the price spark in unconventional resources such as the oil sands and shales. And the potential is large. Geology isn't the limit it used to be. Supply constraint has moved to the surface.
Controlling mechanisms now include numbers of rigs, availability of production and processing equipment, supplies of expendables like water and sand, pipelines (properly located), people (properly skilled), access to knowledge and technology, money to pay for everything, and permissions of governments.
One of many ramifications of these recent changes is stimulation of resistance to hydrocarbon development by political factions opposed to oil and gas.
The technological leaps that deemphasized geology as a supply constraint also promised to extend the age of hydrocarbon energy.
This prospect is intolerable to antagonists of the oil and gas industry, who formerly could count on natural depletion to advance much of their agenda.
The promise of new life for oil and gas helps explain why the case against fossil energy is pressed with new urgency.
Migration upward of the oil gas industry's performance limits helps the antagonist agenda. Limits are easier to see on the surface-and easier to manipulate into political targets.
(From the subscription area of www.ogj.com, posted Apr. 29, 2016; author's e-mail: [email protected])
Bob Tippee | Editor
Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.
